UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT
Petition for Review of an Order of the Securities and Exchange Commission.
Ruth B. Ginsburg and Sentelle, Circuit Judges, and Re.* Opinion for the Court filed by Circuit Judge Sentelle.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE SENTELLE
Wisconsin's Environmental Decade, Inc., has petitioned for review of an order of the Securities and Exchange Commission under the Public Utility Holding Company Act of 1935. The order approved the application of WPL Holdings, Inc. to acquire all the stock of Wisconsin Power and Light Company and to thereafter be exempt from all but the acquisition-review provisions of the Act. We grant the petition for the reasons set out below. I. BACKGROUND
Public utility holding companies and their affiliates are regulated by the Securities and Exchange Commission under the provisions of the Public Utility Holding Company Act of 1935 ("PUHCA" or "the Act"), 15 U.S.C. §§ 79 to 79z-6 (1982 & Supp. V 1987). The Act requires SEC approval to acquire a five-percent or greater voting interest (including an indirect interest) in two or more public utilities. See id. 79i(a)(2), 79b(a)(11). PUHCA directs the SEC to apply multiple tests in its consideration of an application for such approval, several of which are pertinent here. First, section 10(c)(1) provides that the SEC "shall not approve" an acquisition that is "detrimental" to the "simplification" mandate of the Act. Id. § 79j(c)(1). See id. § 79k (directing the SEC to, inter alia, simplify and eliminate unnecessary complexities in registered holding companies and their subsidiaries). Second, section 10(c)(2) mandates that the Commission "shall not approve" an acquisition unless it finds the acquisition "will serve the public interest by tending towards the economical and efficient development of an integrated public-utility system." Id. § 79j(c)(2). *fn1 Finally, if other conditions are met, the SEC "shall approve the acquisition unless" it finds that the acquisition "will unduly complicate the capital structure of the holding-company system of the applicant or will be detrimental to the public interest or the interest of investors or consumers or the proper functioning of such holding-company system." Id. § 79j(b)(3). The SEC has the power to condition its approval as it finds necessary or appropriate. Id. 79j(e).
In addition, the statute directs the SEC to exempt from the requirements of PUHCA a holding company and its subsidiaries that "are predominately intrastate in character and carry on their business substantially in a single State," id. § 79c(a)(1), "unless and except insofar as it finds the exemption detrimental to the public interest or the interest of investors or consumers," id. § 79c(a).
Wisconsin Power and Light Company is a publicly traded Wisconsin utility and holding company. It owns one-hundred percent of South Beloit Water, Gas and Electric Company ("South Beloit"), an Illinois utility with a service territory adjacent to WP & L's own, and a 33.1% interest in Wisconsin River Power Company ("River Power"), a Wisconsin corporation engaged in hydroelectric generation. In addition, WP & L has several non-utility subsidiaries. Since 1936, WP & L has been exempt as a localized, predominately operational holding company from all but the acquisition-approval requirements of the Act. Wisconsin Power & Light Co., 1 S.E.C. 362 (1936).
In April 1987, WPL Holdings, Inc. ("Holdings"), a newly formed Wisconsin corporation, applied to the SEC for approval to acquire all the stock of WP & L (and thereby, indirectly, five-percent-or-greater interests in South Beloit and River Power as well). Holdings was organized to replace WP & L at the head of the corporate family and to reorganize operations into a utility group under WP & L and a non-utility group under Heartland Development Corporation. The proposed reorganization would ostensibly help WP & L "more effectively address the growing national competition in the energy industry, refocus various utility activities, facilitate selective diversification into non-utility businesses, afford separation between the utility and non-utility businesses, and provide additional flexibility for financing and maintaining appropriate utility capital ratios." WPL Holdings, Inc., 40 S.E.C. Docket 634, 636 (1988). Related applications to the Public Utility Commission of Wisconsin, Illinois Commerce Commission, and Federal Energy Regulatory Commission were approved before the SEC rendered its decision.
In accordance with state law the Public Service Commission of Wisconsin imposed a variety of conditions on its approval. See Wis.Stat.Ann. 196.795 (West Supp. 1988). In particular, the order of the Wisconsin agency limited the sum of all assets of the non-utility affiliates to twenty-five percent of the assets of WP & L, required Holdings to pass through to its shareholders WP & L's dividends until WP & L reaches and maintains a fifty-percent common-equity capitalization, required WP & L to base its dividend policy solely on its own capital needs and financial health, and required the system to file various reports, plans, and agreements. See WPL Holdings, 40 S.E.C. Docket at 641.
Wisconsin's Environmental Decade, Inc. ("Decade"), a not-for-profit environmental and consumer corporation, opposed Holdings's application to the SEC on three grounds that have been brought forward for our review. First, Decade contended that the reorganization was not one "tending towards . . . an integrated public-utility system," as required by section 10(c)(2) of PUHCA, 15 U.S.C. § 79j(c)(2), because it added nothing to an already integrated system. Second, Decade contended that the reorganization would facilitate diversification, deemed harmful by section 11(b)(1) of the Act. See id. § 79k(b)(1). Third, Decade contended that the addition of a non-operational ...